U.S. debt situation is calamitous, worse than anybody said

Tue, 02/15/2011 - 12:15pmDr. Mark W. Hen...

Brace yourself. This isn’t going to be pleasant. If you’re in a bad mood or get easily upset, you may wish to pass on reading this article.

The country is in even worse shape economically than we thought. We awoke on Feb. 14 to find that this year’s federal budget deficit is going to be larger than previously projected — a record $1.65 trillion.

Recently, the official accumulated debt of the federal government passed the $14 trillion threshold.

A trillion is a gigantic number. If you stacked $100 bills flat on top of each other, then turned that stack on its side, a trillion dollars would stretch from where I live in western Pennsylvania to somewhere past St. Louis.

That’s just ONE trillion. Multiply that by 14, and it would stretch from here to Honolulu and back with plenty to spare.

The really bad news is that Uncle Sam’s debt is significantly greater than $14 trillion, and I am not referring to the tens of trillions of dollars of unfunded liabilities representing undeliverable government promises. According to data released by the U.S. Treasury on Jan. 21, the public debt is $20.7 trillion, an increase of $3.3 trillion in just the last year.

The larger sum — actual existing debt of $20.7 trillion — includes such off-budget items as bailouts, Fannie Mae and Freddie Mac, student loans, and who knows what else?

I have to say “who knows what else,” because the leviathan federal government long ago became too large to keep track of.

For example, 25 years ago the Grace Commission, instituted by Ronald Reagan in the hope of identifying ways to streamline the federal government, was unable to tabulate how many people worked for the federal government, although they did manage to identify 963 federal programs that redistributed wealth.

Not only is our current national indebtedness more than 40 percent greater than the already horrendous commonly cited figure, the Social Security program is in worse shape than expected, too.

As recently as a month or two ago, it was widely accepted that payouts from Social Security would start to exceed revenues in 2016. In a stunning development, the nonpartisan Congressional Budget Office released a report on Jan. 26 which projected that revenue shortfalls will begin this year and continue uninterrupted until all unfunded IOUs are exhausted by 2037 (if not much sooner).

The CBO projects what would have been a $45 billion shortfall this year, but thanks to the terrible deal that President Obama and congressional Republicans forged in December — the one that included a 2-percent reduction in Social Security withholding from workers’ paychecks — this year’s Social Security red ink is expected to hit $130 billion.

At the state level, finances are deteriorating at a sickening speed. Governors are starting to ask the Obama administration for permission to drop people from Medicaid (280,000 people in Arizona alone).

Moody’s, the debt-rating agency that seems to wait until after a collapse has happened to lower its rating of an entity’s finances, is making noises about downgrading the credit rating of several states.

At the municipal level, many bonds continue to tank as municipalities careen toward bankruptcy. Of the three largest bond insurers, two are already bankrupt while the survival of the third is in doubt.

Meanwhile, Obamacare is ripping us apart. The administration itself has already granted over 200 waivers to well-connected businesses and labor unions from having to comply with its unaffordable costs (meaning that wealth is being redistributed from those who don’t receive the exemptions to those that do).

Two federal judges have upheld Obamacare while two others have ruled it unconstitutional. The result is that some state governors and attorneys general are voiding it within their jurisdictions while others are not.

Obama is proceeding with costly implementation despite the bill’s uncertain status. Besides the confusion and uncertainty that this is sowing, valuable time will be consumed in waging this titanic constitutional struggle — time that could and should be spent addressing the ballooning spending/debt crisis.

Given the magnitude of governmental fiscal woes, the struggle in Washington between Democrats who talk about (but don’t propose) a possible spending freeze in one small corner of the federal budget, and Republicans who claim to want to cut $100 billion of annual spending, is a cruel joke. Talk about fiddling while Rome burns!

The financial condition of governments at all levels is worse than it ever has been. Neither political party seems ready to address the crisis in any meaningful way. As a result, our financial predicament is even worse than most of us had thought.

[Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values (www.VisionAndValues.org) at Grove City (Penn.) College.]